To beat slowdown, Acer figured

When Acer, the third-largest maker of personal computers, got the first hint of a slowdown in the December quarter of FY09, it moved to put in place measures to ensure growth in volume and profitability even in tough times.

W S Mukund, managing director, said his company achieved this by adopting the formula of MC2, which addressed three areas — market share, cost and cash. All of these are now in the positive zone.

Acer began by ruthlessly snipping operational costs. This involved renegotiating contracts with vendors, suppliers, real estate leases, telecom companies and others.

The company’s largest chunk of the operational expenses (opex) was freight cost. The company uses the services of express logistic companies to ship its hardware. Acer was able to negotiate a 40% reduction in freight rates.

It also bargained hard for lower rentals and slashed its communication budget. Advertising spends were brought down by leveraging partnerships with channel allies and chipmakers like Intel, AMD and others.

“We were able to get better deals because that was a phase when everyone wanted to offer more because of the slowdown,” said Mukund.

Through aggressive cost cutting, Acer has been able to bring down total costs by 25%.
Dinesh Nair, manager-modern retail, Acer, says the opex of his company is lowest in the industry at 6% of total revenues. Rivals Dell and Hewlett Packard (HP)  have opex of 10.5% and 14%, respectively.

Another step that has helped Acer further reduce cost is adopting fast moving consumer goods marketing strategy for its brands — Acer, Gateway and emachine.  By this, it brought down the turnaround of its inventory to less than 25 days in Asia-Pacific region. In US and Europe, its inventory is six days and seven days, respectively.

The PC company also launched its brands Gateway and emachine in May to address the entire spectrum of the consumer market. Gateway is placed in the high-end segment — Rs 45,000 upwards — while emachine is priced at the lower end.

A Gartner survey shows that Acer increased its market share by two percentage points in the June quarter over the previous quarter by hawking 42,000 more units. The company’s share had slipped by 20 basis points in December quarter while it was stable in March quarter.

Mukund says Acer’s total revenue jumped 58% in July compared to the same month last year and that August is witnessing a much higher growth.

The company has also been able to maintain account receivables at 30 days. “We incentivised early payment. This made sure we didn’t slip on account receivable and ensured cash flow,” said Mukund.

The company’s net profit in India shot up 4% this year from 2.5% last year despite, slowdown in the market.

Acer, which is currently at second position in the notebook segment after HP, wants to become the largest player in the Indian market by the end of 2009.

“The gap between Acer and HP is just 1.7 percentage points (HP at 21.8% and Acer at 20.1%). We can easily overtake HP to become the largest player by 2009-end. If not end of this year, then by early 2010, we will be the market leader,” Mukund said.
Diptarup Chakravorti, hardware analyst at research firm Gartner, said that is a tough task.

“Yes, Acer has done better than other vendors in second quarter (June) but it has weakness in the medium and large enterprise segment, where HP and Dell are very strong. Their strength is education and government segments. They also have strong brand loyalty,” he said.